BIG EURO BILLS MAY REPLACE DOLLAR AS MOB 'S CURRENCY OF
CHOICE

By Sylvia Nasar New York Times Service

NEW YORK---The potential challenge that Europe's new single currency
poses to the dollar ' s dominance of global trade and bond portfolios
has been widely anticipated.

Largely overlooked, however, is another threat: The euro may edge out
the dollar as the currency of choice in the world's huge underground
economy and in the process end a profitable American monopoly.

The threat comes from a little-noticed decision by the European
Monetary Institute to issue the euro in some very large denominations,
including 100), 200, and 500 euro notes, equivalent to about $110,
$220 and $550 at the expected rate of exchange.

These denominations are intended to mirror those of the Deutsche mark
and give the new currency a reassuringly familiar look to those with
doubts about monetary union.

But the big bills, according to Kenneth Rogoff, an economist at
Princeton University, will also have the presumably unintended
consequence of offering drug lords, organized-crime bosses and other
underworld figures---not to mention ordinary tax evaders---a superior
vehicle for doing business.

"Giant bills will help the Europeans compete with the United States
for these 'customers,'" said Mr. Rogoff. "We have these crummy $100
bills, and they're going to have a $500 bill. You'll be able to
smuggle a million in or out of the country in a purse instead of a
suitcase."

Economists once estimated that just 10 percent of all currency in
circulation was tied up in the underground economy. Now it turns out
that 80 percent is closer to the-mark. Most of it is in $100 bills,
which are the largest available U.S. denomination and now account for
well over half the value of the nation's paper tnoney.

American banks and businesses hold very little cash. American
households are also loath to keep much of it lying around.

Yet, according to the Federal Reserve Board, there is enough currency
floating around to make it appear that every Arnerican family of four
has $6,000 or so in cash stashed under the mattress, including three
dozen $100 bills.

Despite the proliferation of credit cards, automatic teller machines,
and electronic funds transfers, the sea of cash has been growing much
more rapidly than the nation's gross national product.

As the issuer of dollars, America has been making out like a
proverbial bandit. With $400 billion of its currency in circulation,
the U.S. govemment is eaming $20 billion to $24 billion a year, or the
amount the government would have to pay if all that currency had to be
replaced with Treasury bonds paying between 5 percent and 6 percent
interest.

Criminals prefer cash for the obvious reasons: It is anonymous,
portable and easy to hide. For the same reasons, they prefer bigger
bills to smaller ones. Until now, they have had an overwhelming
penchant for dollars because there are so many of them, they are
convertible anywhere, and they are, relatively speaking,
inflation-proof.

But faced with the choice of an even better product, the euro,
criminals may well switch. And without the underground economy, parts
of the United States could see a dramatic decline in revenue.